The 60-Day Deadline That Can Cost You 30% of Your Savings
The IRS gives you exactly 60 days to complete an indirect rollover. Not 60 business days. Not two months. Sixty calendar days from when the funds leave your original account. Miss this deadline, and you face two separate penalties that can devour nearly a third of your retirement savings.
How the Penalties Stack Up
When you receive a distribution from your 401(k) or IRA and fail to roll it into another qualified account within 60 days, the IRS treats it as a taxable distribution. Here’s what happens:
Income tax: The entire distribution gets added to your ordinary income for the year. Depending on your bracket, that could be 22%, 24%, 32%, or even 37% in federal taxes alone. State income tax piles on top if it applies to you.
Early withdrawal penalty: Under 59 and a half? Add a 10% penalty on top of the income taxes.
Example for someone age 50 in the 32% bracket:
- Distribution: $100,000
- Federal income tax (32%): $32,000
- Early withdrawal penalty (10%): $10,000
- State tax (5% example): $5,000
- Total loss: $47,000
That’s 47% of your distribution gone because you missed a deadline by even one day.
Why Indirect Rollovers Are Risky
An indirect rollover happens when your 401(k) or IRA sends the money to you instead of directly to a new custodian. The check is made payable to you. The funds hit your bank account. You’re on the hook for depositing them into a new retirement account within 60 days.
The risks pile up quickly:
Mandatory 20% withholding: Your old 401(k) must withhold 20% for taxes. You receive $80,000 on a $100,000 distribution. To complete the rollover, you have to deposit the full $100,000. That means coming up with $20,000 from somewhere else.
Spending temptation: The money is sitting in your checking account. Emergencies come up. Unexpected expenses happen. The 60 days pass faster than you think.
Administrative delays: Banks hold large deposits. New account applications get stuck. Checks get lost in the mail. Any delay pushes you toward the deadline.
How the 60-Day Countdown Actually Works
The 60-day period starts the day after you receive the distribution, not the day you requested it. If a check gets mailed to you on March 1 and you deposit it in your bank on March 5, your 60 days start on March 6. Day 60 is May 4.
If you’re depositing via check, remember: the rollover must be completed, meaning the new custodian must receive the funds, by day 60. Mail takes time. Processing takes time. A check mailed on day 58 might not arrive until day 63.
Smart practice: Complete your rollover deposit by day 45, giving yourself a 15-day buffer for anything that goes wrong.
IRS Exceptions: Limited and Narrow
The IRS allows a self-certification process for late rollovers, but only for specific reasons:
- Financial institution error or delay
- Death or disability
- Hospitalization
- Incarceration
- Restrictions imposed by a foreign country
- Postal error
- Distribution made due to IRS levy
- Disaster relief areas designated by the IRS
“I forgot,” “I didn’t know the rules,” and “I needed the money temporarily” don’t cut it. If you don’t qualify for an exception, the penalty stands.
The Simple Solution: Direct Rollover
A direct rollover (trustee-to-trustee transfer) eliminates the 60-day risk entirely. The funds move directly from your old plan to your new IRA. You never receive a check. There’s no deadline to track. No withholding happens.
Every major custodian, including Fidelity, Schwab, and Vanguard, provides direct rollover services. Most have dedicated rollover specialists who handle the paperwork and coordinate with your old plan.
The process:
- Open an IRA at your chosen custodian
- Complete a direct rollover request form
- Provide your old plan’s information
- Your new custodian coordinates the transfer
- Funds arrive in your new IRA without deadline stress
If You’ve Already Taken an Indirect Distribution
Time is critical now. Do this immediately:
- Calculate your exact 60-day deadline
- Open or verify your IRA is ready to receive funds
- Deposit the full distribution amount (not just what you received after withholding)
- Use same-day wire transfer if you’re close to the deadline
- Get written confirmation from your new custodian that they received the funds
The 60-day rollover window is unforgiving by design. The IRS wants you to keep retirement money in retirement accounts. When you take custody of the funds, you accept responsibility for returning them quickly. Miss the deadline, and 30% or more of your savings can vanish in taxes and penalties.
